1 00:00:00,150 --> 00:00:06,270 Hello and welcome to the Future of Business Podcast. I'm Alison McArthur and I'll be your host in the second season. 2 00:00:06,360 --> 00:00:13,950 We're very excited about our slate of upcoming episodes, which will tackle a broad range of topics from energy to sustainable business to Brexit. 3 00:00:14,100 --> 00:00:19,230 Going forward, we plan to offer a new episode every other week, so please subscribe if you haven't already. 4 00:00:19,290 --> 00:00:22,380 That will ensure that you get the latest content as soon as it's released. 5 00:00:22,530 --> 00:00:28,349 The Future of Business Podcasts is an entirely student run initiative from MBA students at Oxford Side Business School, 6 00:00:28,350 --> 00:00:32,219 and we really appreciate your continued support. The Future of Business. 7 00:00:32,220 --> 00:00:38,670 Future Business. Future business is more global and more decentralised, making sure that enterprises are a lot more responsible. 8 00:00:38,880 --> 00:00:43,110 Smart cities, more collaboration. Consumer driven productivity. 9 00:00:43,230 --> 00:00:46,889 Environmental and social responsibility. Global human centred. 10 00:00:46,890 --> 00:00:50,520 Purposeful individualised. Automation. Big Data. 11 00:00:50,580 --> 00:00:54,180 Climate Change. Space Exploration. Renewable Energy. 12 00:00:54,240 --> 00:00:57,120 Information security. Exciting and digital. 13 00:00:59,960 --> 00:01:06,560 For this episode, we'll be talking about the future of banking, the way in which we bank has significantly changed over the last few years. 14 00:01:06,800 --> 00:01:11,810 Instead of visiting a branch, many people are choosing to check their balances and send payments through their phones. 15 00:01:12,080 --> 00:01:16,520 A new crop of online banks known as Challenger banks have recently entered the marketplace, 16 00:01:16,760 --> 00:01:21,740 promising a superior customer experience with additional services, such as budgeting on an app. 17 00:01:22,040 --> 00:01:26,120 But what does this mean for the traditional banks, HSBC or NatWest? 18 00:01:26,480 --> 00:01:32,780 How will the rise of online banking affect high street branches, the competitive landscape and our experiences with customers? 19 00:01:33,290 --> 00:01:40,520 One of the fastest growing challenges in the banking space right now is Monzo, a digital only bank that's growing rapidly across the UK. 20 00:01:40,820 --> 00:01:46,729 Founded in 2015, the company now has over a million users and is one of the latest tech companies to 21 00:01:46,730 --> 00:01:51,680 reach the so-called unicorn milestone achieving a valuation of over £1 billion. 22 00:01:52,160 --> 00:01:59,360 Monzo is co-founder and CEO Tom Blomfield sat down recently with said business school alumna Hilton de Dahdah, a senior consultant, 23 00:01:59,360 --> 00:02:06,170 product manager with Quantum Black, were pleased to bring you part of that wide ranging conversation organised by Oxford Entrepreneurship Centre. 24 00:02:06,740 --> 00:02:10,850 How do you think traditional banks are responding to the threat of Monzo, 25 00:02:10,850 --> 00:02:20,930 other challenger banks, and how do you rank their offerings and how are they? 26 00:02:21,680 --> 00:02:26,320 How are they responding? Two or three years ago. 27 00:02:28,010 --> 00:02:32,060 They were very dismissive. You're never going to get to a scale, blah, blah, blah, whatever. 28 00:02:32,270 --> 00:02:35,599 We had a million customers and they've stopped saying, saying, you're never gonna get to scale the other thing, 29 00:02:35,600 --> 00:02:40,010 you're not going to make any revenue, and we'll make revenue, and then they'll find some other reason and then they'll be dead. 30 00:02:41,270 --> 00:02:45,620 So I think they all they all are reacting now. 31 00:02:46,640 --> 00:02:49,510 And they're either going to a consultancy called The Lab Affair, 32 00:02:49,670 --> 00:02:53,090 they're going to McKinsey and saying, Can you come and build us a digital bank, please? 33 00:02:54,500 --> 00:03:03,260 And so you've got both. RB Apparently the I will not comment on the name, but that's a sort of standalone digital bank. 34 00:03:03,620 --> 00:03:10,129 Yes, I think HSBC are doing a similar thing, similar thing. So broadly speaking, they're all taking the same strategy, 35 00:03:10,130 --> 00:03:17,480 which is let's create a a challenger brand with new technology and sort of cannibalise ourselves before someone else kind of places us. 36 00:03:17,840 --> 00:03:22,850 The problem that BOE is having and that they all have is they're still under the umbrella of the parents, 37 00:03:23,090 --> 00:03:28,669 and so they're infected by things like their policies. They have to follow the main banks policies which extremely risk averse. 38 00:03:28,670 --> 00:03:32,720 So we end up gold plating a lot of the lot of the rules and just stifling innovation. 39 00:03:34,940 --> 00:03:38,060 So that's how I think they're responding. How would I rank them? 40 00:03:39,830 --> 00:03:42,020 I think Barclays is probably at the top, actually. 41 00:03:43,040 --> 00:03:48,710 If we look at customer satisfaction surveys and and sort of app features, Barclays tend to be at the top, 42 00:03:49,790 --> 00:03:53,630 HSBC and obviously at the other end of the spectrum, I think, and then the rest somewhere in the middle. 43 00:03:54,340 --> 00:04:00,680 If I was a NatWest customer for 17 years, but I finally closed it to go full Monzo about six months ago. 44 00:04:00,990 --> 00:04:06,560 I'm glad you're using your product. So do you ever think they'll be able to close the digital gap? 45 00:04:06,860 --> 00:04:09,950 They often come with like a lot of resources in terms of capital. 46 00:04:10,460 --> 00:04:18,080 And if they try and develop banks that are kind of separate from the policies because they really have some innovative CEO who is able to break free. 47 00:04:18,440 --> 00:04:23,650 Do you think that they could present a challenge for you guys? I don't know. 48 00:04:24,550 --> 00:04:28,600 I tend not to for most of my clients. I think so. I think they have a few problems. 49 00:04:31,990 --> 00:04:41,880 One is that. I think people in traditional banks, let's say retail financial services, broadly speaking, 50 00:04:42,330 --> 00:04:50,489 are so obsessed with financial products and so siloed in their thinking and organisational design that they organise themselves 51 00:04:50,490 --> 00:04:56,730 around each financial product and work on the optimisation of that financial products to the exclusion of all else, 52 00:04:56,900 --> 00:05:02,639 to the exclusion of the customer. The customer seems like an annoying inconvenience that sort of get their money in and 53 00:05:02,640 --> 00:05:05,670 get them out of the way so we can just focus on doing more of this financial product. 54 00:05:05,940 --> 00:05:09,780 A lot of people at big banks have never talked to an actual customer using the actual products. 55 00:05:10,320 --> 00:05:15,360 They spend a lot of something that the product that they think about the human being. And so that I think is the first problem. 56 00:05:16,560 --> 00:05:25,350 The second problem, I think, is that we moving from a full service bank where you sign up women very young. 57 00:05:25,620 --> 00:05:29,670 And Barclays or HSBC or whatever. Cross sells you all of its own products throughout your life. 58 00:05:29,910 --> 00:05:33,360 This kind of KPI of of products, cross-sell per customer. 59 00:05:34,020 --> 00:05:39,690 And I think we're moving to a platform model of banking or hub and spoke where you are a single interface but 60 00:05:39,690 --> 00:05:44,579 you plug in all of these different products from out from across the market giving the customer better choice, 61 00:05:44,580 --> 00:05:50,430 better customer service, better price. So single interface but different balance sheets all plugging in via APIs basically 62 00:05:51,060 --> 00:05:54,660 that prevent presents an existential threat to the banks business model. 63 00:05:55,580 --> 00:06:00,080 The banks are predicated on acquiring a customer young and then selling suboptimal products. 64 00:06:00,230 --> 00:06:03,470 They don't want a price at the top of the best buy tables because they make less money. 65 00:06:03,710 --> 00:06:11,440 So they rely on inertia and cross-sell. So I think this move to a platform model fundamentally undermines the big banks business models. 66 00:06:12,270 --> 00:06:17,820 To learn more about these issues. I sat down with Alice Cresswell, a fellow MBA students and friend of the podcast. 67 00:06:18,420 --> 00:06:20,910 After starting her career in strategy consulting. 68 00:06:21,060 --> 00:06:26,520 Alice spent the past few years working in digitalisation and digital strategy at the Commonwealth Bank Australia. 69 00:06:26,730 --> 00:06:31,500 I started by asking Alice about how new challenger banks are changing the banking ecosystem and 70 00:06:31,500 --> 00:06:35,880 whether there was a gap in the market that caused so many of them to pop up over the past few years. 71 00:06:36,720 --> 00:06:43,350 I think that part of it was more that there was this opportunity for truly great digital 72 00:06:43,350 --> 00:06:51,150 experiences that was going nuts from the tech giants that we've seen pop up your gafa. 73 00:06:51,360 --> 00:07:02,490 You know, google and apple, facebook and amazon and and the rise of incredible platform like companies in places like China as well with WeChat. 74 00:07:02,970 --> 00:07:07,290 And traditional banks have just never really played in that space. 75 00:07:08,100 --> 00:07:11,819 And the other thing is that I guess since the financial crisis, you know, 76 00:07:11,820 --> 00:07:17,850 we talk about this loss of trust or loss of trustworthiness that banks have gone through, 77 00:07:18,210 --> 00:07:23,880 and it has left an opportunity open for players to come in who are offering something 78 00:07:23,880 --> 00:07:28,170 that's completely different to what people are used to expecting from banks. 79 00:07:28,740 --> 00:07:30,510 And it's come in a few forms. 80 00:07:30,520 --> 00:07:39,270 So when we when we talk about a challenger bank, we generally mean any type of bank that is challenging the traditional big banks. 81 00:07:39,570 --> 00:07:44,550 And so that could even be things like Metro that still have branches, 82 00:07:44,940 --> 00:07:52,470 but have come in with a new model that is much more customer centric then than potentially the old high street banks. 83 00:07:52,950 --> 00:07:59,870 When we think about Neobanks, we generally mean neo as in kind of almost banks. 84 00:07:59,880 --> 00:08:03,390 They don't yet necessarily have banking licences, 85 00:08:03,660 --> 00:08:11,730 but they're able to offer some banking products and they offer a super slick user interface that connects people with banking products. 86 00:08:11,760 --> 00:08:20,040 So an example of that might be Resolute or Monzo up until February last year, which was when they got their full banking licence. 87 00:08:20,520 --> 00:08:27,510 That can bring us to the last category of these new banks, which are digital only banks providing super slick, 88 00:08:27,600 --> 00:08:34,810 mainly mobile app based platforms that have an entirely new tech stack behind them. 89 00:08:34,830 --> 00:08:41,070 So the systems that they're based on are not the systems that the old banks were building in the eighties in the nineties, 90 00:08:41,310 --> 00:08:47,969 but are brand new tech designed to be as as quick and as seamless as possible for 91 00:08:47,970 --> 00:08:52,080 people to be able to do their banking tasks and also as flexible as possible. 92 00:08:52,290 --> 00:08:55,980 So how do you think this has affected the banking ecosystem? 93 00:08:56,160 --> 00:09:05,280 Do traditional banks see these neobanks as their direct competitors, or do they have potential to work together more collaboratively? 94 00:09:05,370 --> 00:09:13,440 Has there been evidence of that happening so far? Yeah, I think that it's it will be a long process. 95 00:09:13,620 --> 00:09:24,450 And the new banks are being taken more seriously as they are growing in in customer base and in brand recognition. 96 00:09:24,750 --> 00:09:28,680 So you mentioned Monzo. Monzo has an incredibly strong brand. 97 00:09:30,150 --> 00:09:36,300 But I think that the traditional banks are are saying this and are acknowledging it. 98 00:09:36,960 --> 00:09:42,300 But it's yet to be proven whether this is something that's quite novel and fun and 99 00:09:42,300 --> 00:09:47,700 exciting for people to get involved and something something cool to have in your wallet, 100 00:09:47,970 --> 00:09:54,420 but not necessarily the institution that you were considering as your main financial services provider. 101 00:09:54,870 --> 00:10:01,169 There is still a gap there, and most of the new banks suggest that only, you know, 102 00:10:01,170 --> 00:10:07,920 20 to 25% of their customers are actually depositing their salaries into their new accounts, 103 00:10:08,550 --> 00:10:14,610 which means that most of their banking is still being done at a bigger traditional provider. 104 00:10:15,300 --> 00:10:18,840 And I think that until that reaches critical mass, 105 00:10:19,290 --> 00:10:24,840 the big traditional banks will still be able to sit back and say, let's let's see how this plays out. 106 00:10:26,550 --> 00:10:31,440 But at the same time, it has definitely prompted change in the industry. 107 00:10:31,800 --> 00:10:35,610 People still trust traditional banks to keep their money and their data safe. 108 00:10:35,910 --> 00:10:45,900 They still trust that basic security capability of a big bank with the new banks. 109 00:10:46,080 --> 00:10:50,160 That trust hasn't yet formed yet because they just haven't been enough years. 110 00:10:50,220 --> 00:10:56,430 There's not enough of a track record there. But the way that they are coming in and the way that they are positioning themselves and as 111 00:10:56,430 --> 00:11:00,300 transparent as they are being about the development of their features and their strategy, 112 00:11:00,750 --> 00:11:09,780 people, people are loving that. And so trust that that bank is really trying to do something different that they are putting the customer first. 113 00:11:09,900 --> 00:11:13,220 It's probably stronger for some of these. These neo challenger banks. 114 00:11:13,520 --> 00:11:20,930 So what do you think the solution is then for traditional banks who are trying to figure out how to respond or react to these challenger banks? 115 00:11:21,410 --> 00:11:29,870 I think the solution is that the big banks have to be very real about what's coming, 116 00:11:30,290 --> 00:11:40,610 and I think they are taking that seriously to certain extents around the world in terms of putting the customer first, 117 00:11:41,330 --> 00:11:48,860 because it's not going to be good enough anymore to have an institution that is structured around channel and product. 118 00:11:49,430 --> 00:11:59,329 You need to be structured around customer need. If a customer goes into a branch and they hear different information or see different branding or have 119 00:11:59,330 --> 00:12:06,890 a different experience to what they get when they call a service centre or when they are on their app, 120 00:12:07,850 --> 00:12:13,190 that's going to be quite jarring for customers and that inconsistency is going to be a problem. 121 00:12:13,670 --> 00:12:21,140 So the big banks are really going to have to be a lot more serious about integrating all of their channels for a smooth experience. 122 00:12:23,090 --> 00:12:27,620 And they are going to have to think about how they can add greater value to customers. 123 00:12:28,190 --> 00:12:38,420 They have sat on customer data for a number of years, but traditionally that data has been used to optimise the selling of banking products. 124 00:12:39,500 --> 00:12:46,850 Now it's time to be looking. And a lot of banks around the world is trying to do this and how that data can be used to benefit the customers. 125 00:12:47,060 --> 00:12:52,160 Yeah. And obviously there's a lot of backlash at the moment against the use of personal data. 126 00:12:52,360 --> 00:12:58,670 I imagine with digital banking, you know, you're going to be doing a lot of processing of customer's data. 127 00:12:59,000 --> 00:13:00,229 Is that, do you think, 128 00:13:00,230 --> 00:13:07,190 going to be a roadblock for a lot of these challenger banks or even traditional banks who are trying to develop their own sort of digital strategy? 129 00:13:07,440 --> 00:13:13,519 Mm. I think when it comes to data there are a few things. 130 00:13:13,520 --> 00:13:20,840 First is is data security and banks invest huge, huge amount of money into data security as as they need to. 131 00:13:22,370 --> 00:13:31,160 The second is the amount of data. So big banks, having had customers for so many, so many decades, have an enormous amount of data. 132 00:13:31,460 --> 00:13:37,190 The structure of that data may not be ideal to be able to use it to the best of its potential. 133 00:13:37,580 --> 00:13:42,770 But the volume is there near banks, challenger banks. 134 00:13:42,770 --> 00:13:51,110 Digital banks have access to great tech and algorithms to use the data, 135 00:13:51,470 --> 00:13:56,450 and they might be getting new data that's well structured, but the volume isn't there. 136 00:13:56,750 --> 00:14:07,070 And to build truly great algorithms and to make the most of that data, you need a high volume of data being pulled into that. 137 00:14:07,850 --> 00:14:12,860 So it's a it's a balancing act between those two things. 138 00:14:13,790 --> 00:14:21,620 People are a lot more comfortable sharing their data, even if it's their banking data, if they think that that's going to give them better services. 139 00:14:21,980 --> 00:14:27,170 And this is applies not just to banking data, but to our lives in general. 140 00:14:27,470 --> 00:14:31,820 I am comfortable with Google knowing where I am if that means I can use maps. 141 00:14:32,760 --> 00:14:37,129 And same thing goes for banking. So if my bank, 142 00:14:37,130 --> 00:14:43,310 knowing where I am through location services on my app means that when I'm at the airport they 143 00:14:43,310 --> 00:14:49,730 can remind me that I should lock my card for transactions in the country that I'm leaving, 144 00:14:50,180 --> 00:14:56,360 or to remind me to tell them that I'm going overseas so that they have an alternate number to contact me on. 145 00:14:56,900 --> 00:14:59,479 Then I'm happy with them having that information about me. 146 00:14:59,480 --> 00:15:05,629 And I think that that's largely I mean, it's a generalisation, but it is something that our generation is more comfortable with. 147 00:15:05,630 --> 00:15:12,140 And the data shows that when people think that they will get better or cheaper services, they are happy to give away personal data to get that. 148 00:15:12,470 --> 00:15:15,290 So a lot of people are like opening accounts with challenger banks, 149 00:15:15,290 --> 00:15:19,190 but are they really putting their whole savings into are they paying their salaries into it? 150 00:15:19,400 --> 00:15:27,800 Has that trust being established yet or is it more kind of, you know, small amounts of money that they think you budget with and that sort of thing? 151 00:15:28,430 --> 00:15:33,380 I think that at this stage people are playing with the idea and I think they think it's cool. 152 00:15:34,430 --> 00:15:38,419 Look, you know, you see some of the cards that the challenger banks are putting out there. 153 00:15:38,420 --> 00:15:43,220 And even when they just move the the writing on the card from, you know, 154 00:15:43,580 --> 00:15:48,569 a horizontal card to a portrait card, suddenly it looks like a completely different card. 155 00:15:48,570 --> 00:15:57,920 And you're like, wow, wow. They're really shaking up the industry. But I think that novelty is something that people want. 156 00:15:58,010 --> 00:16:07,040 But the excitement factor, will that translate to people taking those banks absolutely seriously as their long term financial service providers? 157 00:16:08,480 --> 00:16:11,570 Not yet, because at the moment, it's only about. 158 00:16:12,240 --> 00:16:17,610 A fifth to a quarter of people who are putting their salaries into these digital only banks. 159 00:16:21,180 --> 00:16:30,749 I don't know how quickly that is changing, but certainly when I think about it from a personal perspective or when I talk to friends about it, 160 00:16:30,750 --> 00:16:39,930 they say, let's just see how this plays out before I move my serious products over over to the digital banks. 161 00:16:40,470 --> 00:16:44,340 A lot of people say, oh, digital banks are the best thing that's ever happened to the banking industry. 162 00:16:44,520 --> 00:16:50,790 And then you say, Oh, but you know, where's your salary? Oh, it's going to of course it's going into the High Street Bank. 163 00:16:50,820 --> 00:16:56,980 Yeah, absolutely. But I think, like you're saying, you have to sort of give give the digital banks credit. 164 00:16:57,000 --> 00:16:59,700 Like their marketing strategy has been really good. 165 00:16:59,730 --> 00:17:05,309 It's interesting to see, you know, it's almost like when you get one of these cards that you're joining a club, you know, 166 00:17:05,310 --> 00:17:11,730 like they have to sort of make the most like, you know, there are limited amounts of cards available, like, you know, the different kind of brands. 167 00:17:11,730 --> 00:17:16,080 And, you know, it's very interesting. You sort of see why it draws people in. 168 00:17:16,080 --> 00:17:23,610 But like you say, in terms of, you know, in the long goal, obviously they want people to to, you know, bank with them as their main bag. 169 00:17:23,820 --> 00:17:25,440 But I guess that remains to be seen. 170 00:17:25,650 --> 00:17:36,300 Definitely the emotion that these digital banks can evoke in people and I am thinking most specifically of Monzo now, 171 00:17:36,400 --> 00:17:40,800 I think N26, which is a German based digital only bank, have done quite a good job as well. 172 00:17:42,120 --> 00:17:51,720 The emotion is incredible and I love that emotion is being brought into banking because when people feel more emotional about their service provider, 173 00:17:51,750 --> 00:17:57,899 they are probably also thinking more emotionally or more actively about the day to day running of their money. 174 00:17:57,900 --> 00:18:02,160 And I think that's incredibly important for people's financial well-being and not to be scared of their bank, 175 00:18:02,160 --> 00:18:05,660 to be scared of looking at that balance, to kind of buy it. Yeah, exactly. 176 00:18:05,700 --> 00:18:14,380 To be engaged with your day to day money management is important, and I love that digital banks are bringing that to the forefront. 177 00:18:14,400 --> 00:18:21,240 I love that traditional banks are responding by also trying to create engaging user experiences through their digital platforms. 178 00:18:23,430 --> 00:18:29,249 I imagine it must like, you know, encourage responsible spending, especially after the last few years. 179 00:18:29,250 --> 00:18:32,819 I think people are probably so more conscious about what they're spending their money on. 180 00:18:32,820 --> 00:18:36,209 They don't necessarily want to take out of loans and having that sort of transparency 181 00:18:36,210 --> 00:18:40,650 and that kind of visibility of what's going in and out of their accounts, 182 00:18:40,650 --> 00:18:44,040 I think probably can only help something that's quite interesting. 183 00:18:44,040 --> 00:18:48,720 I mean, I'm from Australia, so I don't know what the international data on this is, 184 00:18:48,900 --> 00:18:55,980 but younger people are becoming more and more cautious about things like credit cards not wanting to get into too much debt. 185 00:18:57,390 --> 00:19:02,790 Housing prices skyrocketing as they are around the world scares people. 186 00:19:05,850 --> 00:19:19,259 I think that being able to be a generation of people who are engaged with everything digitally and used to open opening up apps multiple times a day, 187 00:19:19,260 --> 00:19:24,420 we're also seeing that translate into banking where people are opening up their banking app every single day. 188 00:19:24,630 --> 00:19:29,010 To have that kind of engagement is surely a good thing. 189 00:19:30,300 --> 00:19:36,420 I hope that it helps to stop people going into financial hardship if they can see what's happening in their 190 00:19:36,420 --> 00:19:42,720 accounts on a day to day basis and they can look for things like fraud and stop it as it's as it's happening. 191 00:19:43,020 --> 00:19:49,350 Thank you so much for joining us today. We have a lot of great episodes coming up for this latest season of the Future of Business podcast. 192 00:19:49,500 --> 00:19:56,020 So subscribe on iTunes to make sure you get the latest interviews and analysis from Oxford, said Business School as soon as it's released. 193 00:19:56,520 --> 00:20:00,510 If you have any comments or suggestions, then drop us an email at SBS Podcasts. 194 00:20:00,720 --> 00:20:04,380 SB talks to AC UK. We'd love to hear from you. 195 00:20:04,560 --> 00:20:08,790 We'll be bringing you a new episode in just a couple of weeks time. So until then, goodbye.