When I sat down to write this piece by Siobhan McGinley Head of Marketing, Judopay, I thought, “that’s a big topic.”
So, I’ve narrowed it down to a particular focus and have chosen to talk specifically about Challenger Banks. Now, I know that’s only one particular segment of the fintech world, but I hope you’ll agree that it does illustrate some spectacular insights that can be used in your own business.
It shows how the intersection of finance, technology and social media can be used to enable businesses and services that were just unthinkable only 10 or 20 years ago.
First let me share my own background. I worked for some years on the front line at the RBS in London, which gave me a perspective on the ‘Big4’ banks.
Now I work as Head of Marketing at Judopay, a mobile payments services provider. A fintech. So, I’m going to pull on all of my experience to talk to you about where finance meets start-up meets marketing.
In order to move forward you have to look back. So let’s start with a brief look at history. Challenger banks are not a new idea.
Back in the 1990s, there was a wave of new challenger banks created in the UK. Challengers meaning they wanted to take lucrative banking business away from established high street banks like Barclays, Lloyds, and Natwest.
Some of these challenger banks included Tesco Bank which opened in 1997, Sainsburys Bank also opened in 1997, M&S Bank opened in 1999, and Virgin Money opened in 1995.
Twenty years ago, these new challengers followed a particular formula to establish and grow new business. The business goal is pretty obvious, take a sizeable slice of the huge financial services pie.
They all followed the same formula to get up and running. Basically, they avoided all the heavy lifting involved in setting up a financial institution including systems, regulations, data centres by partnering with an existing bank that already had all that infrastructure in place. Tesco Bank formed as a 50:50 joint venture with RBS, Sainsbury Bank was JV with Bank of Scotland, M&S partnered with HSBC and Virgin Money worked with RBS.
With any new business, you need a way to attract and win customers. For these companies, it was a bit of a no-brainer: we have customers, let’s sell them some profitable financial products.
You can just imagine the scene in the Tesco Boardroom when the pitch was made:
‘We’ve got 3,400 stores in the UK where we can get people’s attention. We do about 40 million shopping visits every week so there’s a huge audience and we see them regularly. We have one of the top and most respected brands in the country, people trust us. Now what if we could offer our shopping customers a range of financial services – loans, insurance, credit cards….’
Virgin was a bit different. Virgin had the brand, but instead of in-store marketing it invested heavily in TV advertising on the strength of the Virgin brand to reach an audience of millions.
Last but not least, new businesses need funding. In the case of these banks that funding came primarily from the deep pockets of the parent companies. These were literally the first of what you could call ‘banks of mum and dad’.
Turn the clock forward 20 years and let’s look at what we have today. A lot of challenger start-ups of which almost all of these were founded in the last 4 to 5 years.
As before, we can ask, do they follow a recognizable formula? In terms of the goal or purpose, it’s no different. Financial services is a big and profitable market, so they are trying to get a slice of that massive pie. But that’s where the similarity ends, because the modern challenger start-ups follow a very different approach.
The way the businesses are being built, the way they’re funded, and the way they reach customers are all very different. Let’s look at each in turn.
The modern fintechs are using technology to create organic solutions and I’ve picked out what I think are some of the key trends in this. For a start, it’s entirely feasible nowadays to assemble the banking processes and systems you need by using readily available software solutions in the industry, and this is what the start-ups are doing. It’s a DIY approach, rather than relying on partnerships with the big incumbents and because it’s new and doesn’t come with all the baggage of legacy systems, the challengers generally can move faster and be more agile.
The next pillar is that the customer experience is mobile-first or even mobile only. The smartphone technology is at the core of pretty much everything the challengers are doing, with the focus on intuitive, convenient and flexible solutions. These days, you take the bank with you everywhere you go.
A third key factor is the access to cloud computing services. Back in the day, to get operational you had to find a physical data centre, buy the servers, set them up and install the software. That all cost a lot of time and money, and you had to guess how much equipment, space and capacity you would need. Cloud computing avoids all that using state-of-the-art services like Amazon. You simply dial up what you need instantly and then you can ramp it up or down as your business scales.
As you can see, it’s a very different landscape to 20 years ago. One of the reasons I believe there are so many entrants in the ‘challenger’ category is the ease of deploying technology to get up and running as well as the flexibility and power of the technology to enable you to differentiate yourself.
Now, these are not the banks of mum and dad, but, they are the banks of the founders, the investors and the employees. Despite the number of players, there’s clearly a large appetite and a lot of capital available to fund them.
(I do wonder if quantitative easing has anything to do with this. For example, in the UK the Bank of England pumped £435Bn into the economy through QE. Is this what’s finding its way into VC funding for fintechs?) There’s a lot of high value companies in this space now, and they don’t seem in any rush to go public.
(Out of interest, Instagram was valued at $1Bn when it was bought by Facebook, and Google bought Youtube for $1.6Bn. These challenger banks are already in that kind of valuation territory.)
Unlike the new banks in the 1990s, none of these challenger start-ups have a big well-known brand in their structure, none of them have thousands of retail outlets and they especially do not have millions of customers to leverage from an existing franchise. So how do they get an audience of millions to know and use their solution?
Social Media is the main lever to bring them up to that high level they want to be at. It’s not the only element of customer strategy, other digital and marketing tactics are available too. But for now I want to concentrate on social media and talk about 3 aspects of it. These aspects are acquiring customers, branding, and mobilizing your customer network. These 3 have some overlap and interaction, and when you do all 3 effectively and with consistency, you create a kind of virtuous circle that is self-reinforcing.