There’s been a bunch of headlines in the last week of online banking failures whilst, at the same time, another group of headlines of bank branch closures because customers should use digital banking.
There’s a conundrum here: if your bank is not dependable for online banking, how come you have no access to a branch? Or, you could turn that around, and ask: if you have no access to your bank account, why would you use that bank?
This conundrum has nothing to do with digital banking btw. It’s all about how fit your bank is for digital banking. I mean it’s interesting that most headlines of banks that are failing digitally are old banks. Equally, neobanks, challenger banks and digital banks never had branches, so people are happy to deal with a branchless bank … as long as their digital services are up to scratch.
This is something that will last for a while – maybe the next decade – as old banks transform to digital structures whilst trying to keep up with digital banks who had no historical analogue structures.
That raises another interesting commentary as my main thesis is that digital banks have no history, limited capital, a customer growth challenge and a question of trust. Traditional banks have almost unlimited capital, a locked-in customer base and a license for trust, backed by years of history (sometimes centuries).
The latter’s strength is possibly becoming their weakness as, a decade after most challenger banks launched, they now have some history, they have millions of customers and they are trusted. Just look at Revolut, Monzo, N26, NuBank, Chime and more.
This kind of shows that we are in a pivotal phase of transition from last century banking to this century banking. The new banks are:
- not having outages like the old banks;
- not closing branches, because they never had them, and therefore aren’t annoying customers by closing them;
- delivering innovation constantly, and have lots of cool and funky features that fit well with GenZ and other customer lifestyles; and
- the new banks are digitally fit.
Meanwhile, the old banks are:
- seeing more and more downtime, outages and zero access to their digital services whilst
- closing branches and other access to their accounts, whilst
- struggling to innovate and keep up with the features that digitally native banks offer, whilst
- struggling to change their organisation and culture to be digitally fit.
The recent headlines seem to be showing the chasm between the old and the new.
A final thought. In an industry based upon trust where everything is dependable and reliable, what reputational loss occurs when you are not? I always remember a banker talking to me about transactions are like flights. If your airplane provider crashes once – a timely discussion given the terrible American Airlines crash the other day – you forgive them. If every flight is crashing, you would never fly with them. The same applies to a bank. If your banks system crash once, you probably will forgive them. The more the frequency of crashes and you don’t.
Take note.
