The upside of the financial crisis: The emergence of banking innovations

The financial crisis has at the end of 2011 become a global concern again and the outrage about certain corporate behavior has lead to “occupy movements” globally. A significant drop in consumer confidence in financial institutions is the result that drives citizens to the streets to voice their anger and frustrations. Even though a certain bank might not have been actively involved in the high-risk trades of recent years, the image of the industry as a whole is damaged.

From Zurich, Switzerland to Charlotte, NC: consumers lose confidence

Certainly consumer confidence is different in each market and for each brand. Looking at the situation in Switzerland it turns out that a bank like UBS has experiences several shocks (20 billion USD loss in 2008, 50 billion USD have been written down, US tax evasion scandals and rouge trading scandals that required Oswald Grübel, one of the most prolific bankers in Switzerland to resign as CEO) and customers react and move move their money to other banks. Swiss cantonal banks have seen their business mostly unaffected and instead experienced a significant inflow of new customers. Similar situations have played out in Germany, United Kingdom and the United States even though each market has its unique characteristics.

What is common in each market is that the customers perception is that a large degree of these problems are caused by banks that have focused too much on making profits instead of providing services and caring about their customers.

Bank of America has experienced significant losses since 2008 and in order to offset these losses the company tried to introduce different measures, one of them was additional fees for debit cards. After customers protested and threatened to close their bank accounts, Bank of America stepped back and removed the fee again. But the damage has already been done and the result is that more customers have lost their trust in the financial system.

As always there are two sides to these developments: The dissatisfaction with banks and the financial service industry is also the breeding ground for financial service innovations. Several new services are emerging, that directly address the needs of these unsatisfied customers and they are receiving a lot of attention.

Removing merchant accounts

If a merchant wants to accept credit cards it usually requires to open a merchant account which is a complex process, especially for small and medium sized businesses. Startups like Square and Stripe make accepting credit card payments for merchants a lot easier and they don’t require merchant accounts anymore. Merchants can simply accept payments through their platform and the money is transferred directly into the merchants bank account.

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Simple: a new bank for customers

Bank Simple has the goal to become a bank for customers because retail banks have forgotten who their customers are. The company is by itself not a bank but it provides innovative front-end services that use latest technologies while in the back-end the company partners with FDIC-insured banks to ensure the customers money is safe. It is a completely digital bank and therefore also the economics allow the removal of fees. No more surprise fees — nor monthly maintenance fees, overdraft fees, low balance fees, and absolutely no hidden fees. The interest is high as customers get ready to leave their bank.

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Virgin Banking

Northern Rock, the British bank, was nationalized in 2008 and three years later in November 2011 Richard Branson has bought the bank to rebrand it under the Virgin brand. The focus is on customers again with the goal to bring bank the most important experience of banking: safety and trust between a bank and its customers. It would not be Virgin if they wouldn’t put fun back into banking with Richard Branson discussing whether the bank should be called Virgin Vault, Virgin Rocks or Virgin Money.

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Customer Experience in the Financial Industry in 2012 and beyond

The financial industry has develop ideas that address the fears and current emotions of their customers. The times when focus was solely on technical innovations, retail experiences and mobile banking are gone and it is necessary to go back to the basics and restore the essential experiences that customers expect from a bank: safety, trust, fairness and responsibility.

At the same time it will be interesting to observe how established banks will react to the newly emerging players in the market. Virgin and Bank Simple will certainly experience a lot of interest and established banks will still be required to innovate and compete against these new incumbents once they have established their reputation again. In the end customers will benefit with better services and that will make this industry an exciting playing field in the coming years.

 

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