What, asks Glynn Davis, will the retail bank of the future look like and what chance new entrants seizing the day?

Imagine your bank notifying you that last month you spent £180 on coffee in Pret A Manger and that maybe it is time to cut down on your caffeine intake for the sake of your financial well-being. This sounds like a rather unusual scenario to Brett King, founder of US-based outfit Movenbank, as he suggests banks have traditionally been driven by encouraging spending and subsequently benefiting from offering overdrafts, loans, and charging various fees. But offering this sort of advice (to help people better manage their money) is the aim of King who says his branch-less, card-less banking venture will be very different from existing banks. “It’s counter intuitive because we make money from fees and transactions but the stickiness of our business is from offering advice. The banks say they give advice in their branches but they never do. It’s what banking should be about and so we’re taking the high ground,” he says.

His online-only operation – that utilises the banking licences of financial service partners – is focused on delivering a much better experience than that of the traditional banks with their physical branches, which he says are now outdated, having been superseded by the internet and increasingly mobile banking services. King suggests that once mobile begins to be utilised as a tool to help detach banking from physical cards and bank accounts then other new players will move into the market with the objective of providing a better experience – such as Movenbank, Apple, Google and the mobile phone companies – because banks will no longer have ownership of the distribution channel.

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This view of mobile banking taking a strong position in the market is supported by a recent survey from Avanade UK that found 36 per cent of people expect to be doing all their banking through their smartphone by 2020. And it seems the big banks are on the case as another survey, from Fujitsu, found that 72 per cent of retail banks state that they have an “active, clearly defined strategy for mobile banking including mobile payments.”

However, not too much should be read into this as Alex Kwiatkowski, research manager for EMEA banking at IDC Financial Insights, says it has been easy for the banks to “get into mobile” as they have simply bought a platform solution from the likes of Monetise, which has enabled them to make a move with little risk. This observation fits with his broad view that the retail banking industry will change over time but not in a revolutionary sense. “In 2020 the model will be the existing channels – branches, ATMs and call centres – but with a shift to online banking and forays into mobile. This is the area that’s receiving attention,” he says.

Evidence of how little has changed over recent years – from supposedly game-changing new entrants – is the fact Kwiatkowski says the likes of Metro Bank and Tesco have “failed to seize the marketing opportunity and are building old banks.” He adds: “The people building them are old bankers who are playing safe. They make a lot of noise but have failed to capitalise as they’ve done nothing unique.”

Even for newer more radical players like Movenbank – and possibly the likes of Apple, Amazon and Google – he does not see them moving the needle too much either. “The disruption will not be from new technology but from the foundation layers of the banking industry IT infrastructure. It’s outdated, overly complex, and over the years it has required change but it has just been cobbled together,” says Kwiatkowski.

In order for banks to give a more “retail-like” customer experience he says their “creaking, steam-driven technology” needs addressing. And part of this should include the creation of more multi-channel propositions that enable customers to use their banks across multiple channels and for these various channels to be joined together. Nic Merriman, chief technology officer for financial services at Avanade UK, agrees that channels need to be sufficiently joined up, whereby consumers can use their mobile for making payments and checking balances, and then when this is synced to the desktop they then can undertake more in-depth analysis. And when more complex products are being bought then this is where the branch can continue to play a part.

David Parker, head of banking for the UK at Accenture, says as much as 80 per cent of more complex financial products that are initially researched online ultimately involve the consumer visiting a branch for a face-to-face meeting before they undertake a transaction. For this reason he agrees with Kwiatkowski that “technology pureplays will not make a significant splash in the market.” However, he does believe that they will pick up business in certain niches as he suggests technology-centric solutions will be well suited to simple tasks such as making payments. “We are seeing banks like Bank Simple and Movenbank emerge but they will not change the dominance of the existing players,” says Parker.

Needless to say King disagrees and questions the model of the traditional banks because the continued support of large branch networks means the like of Movenbank can operate at up to a tenth of the cost of the established players. Although King acknowledges that branches are “not going to disappear tomorrow” he predicts there will be a 50 per cent reduction in their numbers by 2020. This is driven by his calculation that today people maybe visit a branch twice a year whereas as recently as the 1990s they were probably in there twice a month. He scoffs at the banks’ strategy of working out how to get people into their branches more often instead of putting more focus on developing a digital strategy. Meanwhile the likes of Zopa and Wonga are “filling the gap from a consumer perspective.”

Parker does not envisage such a doom-laden scenario for the physical branch but he does recognise that they will have to change in order to meet the changing demands of the marketplace. “The one-size-fits-all approach is not the future. There will be cashless and advice-only banks in a hub-and-spoke type model whereas the branch on every high street with 10 people in it offering full-service banking is not the way of the future. Banks need to respond to the way customers interact with them today,” he explains.

This interaction should have at its heart an improved customer experience. Parker says: “The experience needs to be easy for the customer and the channels need to fit together so real-time changes can be made and the customer information (that is held) can be used intelligently (like Amazon). This information has to be used to create an intimate experience.”

Merriman agrees that data analysis will come more to the fore in the future and be used for things like offering advice or recommendations. He cites examples seen on Twitter that suggest ‘people like you saved x per cent by doing this...’, in other words, giving a recommendation based on behavioural data. Although he says “everybody could do this today, they don’t because it’s hard.”

This is clearly an area that is being targeted by King who recognises how advice and recommendations can benefit customers and be a significant point of difference – particularly if it can be delivered over mobile devices.

Research from Fujitsu found that better customer retention was cited by 84 per cent of retail banks as a key benefit of offering mobile banking; and 88 per cent believe mobile enhances the customer experience and therefore improves loyalty. But despite these hefty figures the retail banking industry still arguably has some way to go before it is in a position to offer its customers a fully-formed multi-channel proposition that relies less on large High Street branch infrastructures and increasingly outdated back-end systems.

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