open banking

Open banking disruption and SMEs – where to next… for traditional banks?

Small and medium business owners are desperate for the disruptive changes which open banking will deliver - even if most don't know they are coming yet. Banks should think about how to turn open banking from a challenge into an opportunity. One way to address key business customer needs is by opening a “data dialogue” with them now, before others own this conversation.

Established banks are facing a perfect storm

Technological innovation and regulatory changes are lowering the entry barrier for financial services companies. Nimble newcomers are no longer held back by stringent compliance and banking license requirements. They are also not encumbered with huge infrastructure costs. They can deliver the modern, easy, personalised, and integrated service that retail – and particularly business – customers have not been getting. SME owners are increasingly frustrated with the contrast between their financial experiences as individuals and as businesspeople.

Customers worldwide are increasingly open to receiving financial services from non-banks. Look at PayPal, Apple Pay, TransferWise. Even the mobile payments revolution in Africa, which bypasses the traditional banking relationship. Now the upcoming EU PSD2 open banking regulations will compel banks to let in third parties via APIs (Application Programming Interfaces). They will have access to customers’ account information, and will be able to make payments on their behalf. Suddenly a traditional bank looks like a bland money safe. And customers cherry-pick providers who offer them delightful experiences around their finances, that are just the right fit.

The UK Government is happy to speed up these changes. The Competition and Markets Authority is introducing reforms to force more competition into small business banking. It wants to address low rates of bank switching and product comparison. Nesta – a UK innovation foundation – is running the Open Up Challenge. It’s a contest for fintechs to take advantage of the transparency and healthy competition PSD2 will enable. Their mission is to transform how small businesses “discover, access and use business-critical financial services”. Crucially, five large UK banks are contributing to a customer data sandbox which entrants can use to test their technology. Such participation is very encouraging, but it also looks like a slight case of “being made to play nicely”…

Banks were slow to understand and respond to business customers’ needs

The rapid pace of technological and regulatory change left banks alarmed about being lapped by competition that didn’t even exist ten years ago, and struggling to decide on the best way forward.

Another reason to worry is that fintech newcomers have really listened to customers, and are addressing their main banking issues. Traditional banks have either not been listening, or listened but for various reasons haven’t done enough about it in time.

I recently heard a great webinar on business banking disruption. The panel participants included Sigridur Sigurdardottir (Chief Customer and Innovation Officer at Santander UK), Pete Steger (Head of Business Development at Kabbage), Luka Ivicevic (Co-founder and Head of Growth at SME-focused bank Penta), and George Bevis (Founder and CEO at SME-focused bank Tide).

Several interesting UK challenger banks were discussed. They all had one thing in common. They’re solving key small business banking frustrations that I’ve heard from Dublin to Hong Kong:

  • “My bank doesn’t know me and my business. They waste hours of my time, and can’t offer relevant financial support”. CivilisedBank has an elegant solution – a fluid network of “local bankers”. This replaces branches and relationship managers (who are only available to larger businesses anyway). It says: “business banking happens where you do business. Our Local Bankers come to you. You’ll always speak to someone you know - your personal banker or their support team”. This kind of thing is what can get SMEs to consider switching banks.
  • “Computer says No” decisions. SMEs feel hamstrung by banks’ inability to accurately judge their creditworthiness. They find that banks are unwilling to take a chance on their potential, and make rigid decisions based on sometimes limited history. Oaknorth describes itself as “the bank for entrepreneurs, by entrepreneurs”. One of its key promises is a dialogue between entrepreneur and lending decision maker. This avoids categorical yes/no decisions read off computer screens.
  • “I can’t plan because I can’t get quick decisions from my bank”. Oaknorth is focussed on continuity of lending. It’s one of the main reasons SMEs are afraid to switch banks. It’s also why they are drawn to venture capital investors who are seen as more committed. CivilisedBank promises to “run in real-time [so] you and the bank access up-to-date information for faster, better decisions”.
  • “I wear many hats in my business, and need to feel in control of everything – but there isn’t enough time for all my responsibilities”. Coconut is a bank account for freelancers and the self-employed. It “works out your taxes, tracks your expenses and helps you get paid on time”. This is a good call in light of the huge increase in UK sole-trader businesses. It’s fuelling demand for integrated services, allowing one person or a small team to run a small business more efficiently.
  • “I get nothing back for my loyalty to my bank”. I’ve heard from many SMEs that while they consider themselves loyal to their bank, they don’t feel it’s reciprocated. Lintel is a digital bank which differentiates itself on ethics and rewarding loyalty. Its customers will receive a bonus based on average account balances.
  • “Personal banking is dead”. Here I see a generational divide. Established SMEs do mourn the almost-extinct local bank manager who knew them by name. Younger ones have rarely known one. They are realistic, even cynical, about their mostly transactional “relationship” with their bank. The webinar panel discussed whether entrepreneurs will stop caring about “personal banking” completely, and value speed and efficiency above all. I personally doubt this. It’s true that saving time on admin gives entrepreneurs more for doing what they are good at, and enjoy most. But there is a risk with fully automating banking. Especially those aspects involving some discretion, faith, and relationship building - like lending. It could make banking convenient most of the time, thanks to apps and snazzy UIs, but even more frustratingly impersonal when it’s the last thing an SME owner needs. CivilisedBank’s Local Bankers are a response to this. And Sigridur Sigurdardottir stresses that SME customers should always be able to pick up the phone and talk to Santander!

Will banks out-fintech fintechs?

Currently banks – established and new – are pursuing several (related) ways to keep up with the competition:

  • Opening themselves up to “plug-in” services via APIs. Penta has embraced this. It’s aiming for an open platform to “enable creative app writers, for customers to benefit from great services”. Mobile-only bank N26 is creating a bolt-on ecosystem which is already looking beyond core financial services, to insurance and lifestyle.
  • Full partnerships. Santander has partnered with Kabbage to provide its SME lending in the UK. Santander chose to partner with a fintech delivering excellent customer experience in a particular area. Kabbage partnered with an established bank to benefit from its brand recognition and trust. Barclays is opening Rise, a huge co-working space to “match fintechs with business challenges we we face as an incumbent bank”. Market Gravity is currently helping another global bank implement similar partnerships as part of our work on its business banking proposition.
  • New digital banking platforms, allowing banks to do creative things with customer data, including through APIs. Monzo built its own platform. Atom Bank partnered with FIS. Market Gravity is helping 10X create a universal platform, built on open banking principles. It will allow banks to deliver very personalised financial experiences to their customers.

A potentially disruptive threat is from non-FS service providers already engaged with SMEs and doing something really well. “Could Xero apply for a banking license, or partner with Kabbage?”, asks Luka Ivicevic from Penta. This could create a one-stop-shop for banking, lending and business / financial admin – making banks less relevant. Watch this space… In my own research I see accountants pushing their SME clients towards cloud packages like Xero. These allow them to keep a closer eye on clients’ finances and to act as an adviser. Accountants have SMEs’ ears, and I can easily see them recommending “Xero Bank”.

It’s not yet clear whether banks will be strengthened by the rush to collaborate with fintechs, or fade into the background. They could become difficult to tell apart, and lose their grasp on the customer relationship. What is the right thing for a bank to do? Become an app store and allow a universe of fintechs to plug in and serve any customer need imaginable? Pursue tactical partnerships to become best-in-class for certain customer types? Rebuild themselves on top of a new banking platform? Or just serve as the “plumbing” infrastructure in some completely new banking environment?

Banks should open a “data dialogue” with business customers

Customer data underpins all these new conversations about the future of banking. George Bevis from Tide sees the very definition of banking changing to acknowledge that it constitutes a huge “data hub” of any business. I believe that there will be a rise in data processing platforms which will enable SMEs to glean insights from all the data they generate, helping their growth. All sorts of interesting data sources will also be coming into play. This is happening already – Kabbage makes lending decisions by using customer data which Santander can’t.  However, there are still important legal questions to resolve. Who owns the data – customer or bank – and who can access it? Pete Steger from Kabbage points out that this is a hot issue in the US – so we may be leading the way with PSD2 in Europe.

I think more banks will take steps in the right direction by opening  a “data dialogue” with their SME customers. This will give both parties real-time awareness of a company’s cash flow and banking behaviours – and of how these affect its credit score and borrowing options. Businesses could be guided towards optimal financial health. They should be better able to quickly secure credit that suits their needs. Market Gravity and a major Irish bank recently developed an SME working capital proposition based on this thinking.

Open banking is a challenge and an opportunity for traditional banks

Now is a crucial time for banks to formulate a clear strategy to survive and thrive in the new world of open banking. How to take advantage of the best of what’s already out there, and upcoming changes? How to reflect their own unique strengths and identity?

And above all – how to understand customers’ changing needs and expectations, and translate it all into products and services that result in delightful, long-term engagement?

Open banking is an opportunity for a long overdue reset of established banks’ relationship with their customers. A client with their eyes firmly set on this opportunity recently told me: “We want to be the most-loved bank in the UK.” Are you aiming this high?

 

Igor Zakhleniuk, Insight Lead, Market Gravity

Market Gravity partners with the most ambitious companies across Europe, Americas and Asia to create and launch breakthrough propositions that make their customers’ lives better.

Get in touch with me at igor.zakhleniuk@marketgravity.com to talk about where your company wants to go next.


Joining forces with London Tech Week Academy to launch mini-MBA

We are delighted to be working in partnership with London Tech Week as it launches its first Academy. The London Tech Week Academy offers a series of unique learning experiences bringing the best and brightest talent to London.

Running from 12th to 16th June, with a focus on innovation in the digital age, London Tech Week Academy will be held at the Academy by Google. Up to 60 individuals from different backgrounds including product, digital, marketing and finance will join a corporate innovation journey going from Post-it® to prototype. The journey will culminate in a pitch to an expert panel.

This ground-breaking new programme, aimed at attracting the brightest and best talent in the UK and globally, will help executives unlock and commercialise digital innovation. Market Gravity co-founder and CEO Peter Sayburn co-created the programme with London Tech Week Academy. And Peter will also lead and facilitate the innovation curriculum, which will allow participants to take corporate innovation frameworks and capabilities back to their organisations.

The learning experience is for individuals with the drive and ambition to move their careers to the next level and help change and drive how their organisation innovates. Employers can sign up executives and high potentials to take part in the experiential learning programme. The programme goes through the innovation process focusing on four types of activities: learning, experiencing, engaging and delivering. Participants can also access exclusive TechXLR8 events, which showcase the latest technology. And they also have the opportunity to meet leading tech experts and innovation strategists.

Peter said: “It’s a fantastic honour for us to be delivering the Innovation mini-MBA together with the team at London Tech Week Academy. We look forward to welcoming innovators working within large and medium business from all sectors. It’s a unique opportunity for executives with between five to 15 years’ experience, as well as their employers, to access insights into delivering innovation within the workplace.

“Innovation is bringing new and exciting opportunities to businesses and now is the time to embrace the technology available and implement new ways of working. London Tech Week’s Academy is the ideal platform for executives looking to learn more about innovation processes first hand.”

Fionnuala Duggan, Director of the London Tech Week Academy added: “This is the first time we’re including an Academy element as part of London Tech Week. Market Gravity was the ideal partner for this immersive and engaging programme, thanks to the team’s deep expertise and experience of innovation within big businesses. We're looking forward to seeing participants engage with tech leaders and innovators at the different events happening throughout the week."

London Tech Week Academy will run three core programmes during London Tech Week:

  • A bespoke one or two-day C-Suite Digital Disruption and Innovation Immersion for senior management groups within a specific organisation, aimed at experiencing and understanding rising technology in action
  • A five-day Innovation Mini-MBA aimed at helping participants learn and practice how to unlock and commercialise digital innovation
  • A one-day digital marketing fast-track running each day from 12th to 16th June for individuals wanting to learn about all the digital marketing tools available today and trends to look out for this year.

Applications for the mini-MBA are open now. To find out more about London Tech Week and to register for the Innovation Mini-MBA, visit https://tmt.knect365.com/londontechweek-innovation-mba .

London Tech Week 2017 will be organised by founding partners, KNect365, London & Partners and Tech London Advocates, with support from strategic partners Tech City UK, ExCeL London, DIT and techUK. More information on can be found https://londontechweek.com/


The 'Secret Sauce' entrepreneur series: Dirty Baps

When Market Gravity recruit new team members, we look for an entrepreneurial spirit. The ability to inject entrepreneurialism into projects is at the heart of what we do to help big businesses create new, successful propositions. It’s this ‘secret sauce’ that makes us different to other innovation and proposition design consultancies.

Many of the team at Market Gravity are entrepreneurs. They’ve started their own businesses outside of Market Gravity – something we advocate and actively look for. Our entrepreneurs know the work it takes to get something off the ground. They are passionate about ideas in the same way our clients are passionate about theirs. And they’re able to draw on their experiences when working together to create new products and services.

And because we love to share, celebrate and support our teams’ entrepreneurial passions, we’ve created a series of blogs about them. This month we chatted to Sheena Campbell our Office Manager about a start-up she helped create and launch – Dirty Baps.

Sheena and Oz working their Peckham market stall

Hi Sheena. What does your startup do?

Dirty Baps is part of the street food wave in London. Selling outrageously tasty breakfast sandwiches from good quality ingredients at a reasonable price. Let’s face it we all like to indulge at the weekend and stop counting calories. We have sold at a few Markets across London; Hoxton Street, Brick Lane and currently pitched at Peckham Square. http://www.dirtybaps.com

Dirty Baps comes in four mouthwatering varieties

Where did the idea come from?

The ideas man behind it all is Oz. He visited L.A a lot for work over the last few years and sampled a lot of the local food trucks and breakfast spots. One which stood out to him was EggSlut. At the heart of the L.A food scene Oz upholds they do the best breakfast sandwich in existence (apart from Dirty Baps of course).  A breakfast bap is sometimes a lost concept in the UK with little choice between a greasy spoon or expensive brunch spot. With his love of food and passion to start his own business, Dirty Baps was born.

Dirty Baps is about making breakfast classics even better with unique sauces and ingredient combos. Let’s face it, we all like to indulge at the weekend and stop counting calories. We try to keep our margins as low as possible but never cut on quality. Ingredients are sourced mainly from the Ginger Pig farm, local brioche bakers, and cooked to order for only £5!

As Oz’s partner, I naturally got involved with helping him start his journey to break into the street food scene in London. I try to get stuck is as much a possible, from working on the stall every Saturday to creating a digital media campaign and the odd bit of accounting.

 

Where did the name Dirty Baps come from?

The name Dirty Baps of course conjures up a mental image far from breakfast sandwiches. We wanted the name to be memorable, something which would make people smile. It’s a light-hearted pun on the product. The breakfast baps are dirty; we make them with runny eggs and melted cheese in a brioche bap. We must spend half our profit on napkin stocks as you need a lot of them when eating one!

 

Dirty Baps are all made with top quality, locally-sourced ingredients

 

What did you find most rewarding about the experience?

There’s always that feeling you get when you make your first sale and suddenly it all becomes real you’re selling your own product. For me though it must be the feeling that comes when we sell out! In our first week in Peckham, we sold out within three hours and ended up turning away so many customers. It was an incredible feeling we were both overwhelmed with how well it went and Dirty Baps seems to go from strength to strength each week. It’s that feeling which makes it all worthwhile.

 

What was most challenging?

There are a lot of challenges which we have come up against – from finding somewhere to trade, to setting ourselves up to work every weekend. For me, it’s learning that less is more. We have gone through so many iterations of the brand, stall design and product. It takes a long time and many hits and misses before you settle on something you’re happy with.

 

Funniest anecdote?

The name does create a lot of buzz with customers. Someone will walk past and ask for a picture under the sign because they find it so funny. The best one had to be a lady in her 70s – she couldn’t stop laughing and had us take a photo of her under the sign to show her husband. I have this image of her showing friends the picture over a glass of wine and having a giggle. I love that it made someone laugh, the name is definitely memorable!

Hungry punters arriving at the Dirty Baps stall

 

How has your experience helped you at Market Gravity?

When you start a business and you must learn it all yourself, build your website, create a digital media campaign, manage a budget, business accounting, juggle third party relationships. Some are part and parcel for me in my job but others are new and have given be confidence to add value to Market Gravity through those skills, like Marketing for instance. My role as Office Manager has always been a varied one but now I can contribute so much more from having first-hand experience with my own business.

 

 

If you’d like to talk over any ideas that you have for launching a new proposition, or how to overcome innovation challenges you’re facing- get in touch.

Sheena.campbell@martketgravity.com

Find Sheena on LinkedIn