Maslow’s hierarchy of needs dictates that after a person’s physiological needs are met, they prioritise personal, emotional, financial safety and security before anything else less critical for survival.
Security measures are similarly fundamental for a bank to operate. Even the most innovative and intuitive fintech product will not get off the ground without meeting regulatory requirements from the PRA at the Bank of England and the FCA. Looking after customers’ money with robust and secure systems is non negotiable.
However, ask any customer of a UK challenger bank who regulates their bank and some may know, but the majority won’t. Even if they do, it rarely is the primary reason that they chose the product. It is more of a basic consumer expectation that security and compliance are being taken care of.
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Driving adoption of UK FinTech innovations
So once consumers are satisfied that these regulatory fundamentals are in place, what is it that drives meaningful, mainstream adoption of new FinTech products, like current accounts or crypto trading services?
It is the social contract between a FinTech brand and the consumer: a set of expectations that customers have about the services the business provides, and importantly, how they deliver them, how they interact, how they behave in certain situations, and how they demonstrate their corporate ethics and ethos. Consistency must be demonstrated over a sustained period of time across all of these areas, or the consumer’s trust in this agreement will be damaged.
Neobanks fundamentally changed the social contract that consumers expect to have with financial companies. Many people viewed the task that these fintechs were taking on in the early 2010s as insurmountable. In an industry where consumer loyalty to traditional institutions sometimes spans generations, they were attempting to entice customers to new products and concepts, with seemingly confusing brand names. They had no tangible bricks and mortar stores to inspire trust.
Now there is little question that mainstream banking has been disrupted, and it is just a question of which model will win. So how did they do it?
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They understood that to compete at a basic level they needed to secure the underlying credibility that comes with strong regulatory and compliance programmes, and they coupled that with re-defining the social contract with the consumer. They threaded those two themes throughout the fabric of the company.
Starting with how they talk to consumers in advertising and content, extending to the transparent and understandable T&Cs and contracts, challenger banks’ communication style with their community is open and engaging. They are friendly but they are not flippant. This style reflects the accessible user experience and interface across all of their products.
Challenger banks tap into the modern consumer’s appreciation for more human interaction with the leadership and operational team. Just look at the visibility of the founders – they show up at events and answer customer queries on social media themselves. They have an open feedback loop, inviting suggestions on product development from their users. These behaviours create a sense of accountability and personality that is missing from older, more buttoned up institutions.
This new way of operating contributes to an understanding between the brand and the customer that in return for their money, the business is going to deliver their services in a more transparent, accessible, and understandable way.
This new contract has huge implications for the way that any business — whether a 200 year old bank, a fintech, or a crypto exchange — is expected to behave going forward, and how they will win over customers. Many of the big incumbent banks in the UK have innovation departments staffed with people with direct experience of building or working with successful fintechs. Recognition that to re-configure financial services requires a different mindset.
For smaller companies, it is often a comparatively easy task to convince the innovators and early adopters to give your product a try. Crossing the chasm into the early majority and mass market requires a company to build trust and engagement over a period of time.
How to approach modern regulatory change management in financial services
A strong regulation and compliance programme
In new areas of finance where consumers are still cautious, for example crypto exchanges, companies need to be highly regulated, have an expert team, and to provide the highest level of security to protect funds and data. Above and beyond this, delivering on an honest and genuine set of understandings with the consumer is critical.
Implementing security and compliance programmes to show the company takes customer money seriously should be table stakes. Building sustainable relationships with a community of consumers is also fundamental going forward. Fintech consumers expect nothing less in a post-challenger bank world.